Startups find benefits in launch during bad times

Starting a business in a tough economy taught entrepreneurs Chuck Tanowitz and Todd Van Hoosear the value of time.

The duo started Fresh Ground, a public relations firm, in Boston in early 2010. The recession was technically over, but many companies were still feeling its effects. That translated to some prospective clients trying to get something for, well, very little. They quickly learned to structure conversations with prospective clients so they would know early on how much money a client was willing or able to spend — rather than discovering at the end of a long meeting that a client had just $1,000 for a project.

We learned “how to figure out where to find the right (clients) prospects versus the ones who are just tire-kicking,” Tanowitz says.

Conventional wisdom says don't start a business during an economic downturn. Based on government figures, many people agree. In 2007, there were 844,000 new startups in the U.S. By 2009, that number had fallen to 700,000, according the U.S. Bureau of Labor Statistics.

But a starting a company during bad economic times can be good business. It often teaches entrepreneurs lessons that make them better business owners and it can reap benefits such as savings on rents, products and services and access to a better talent pool.

In a downturn, entrepreneurs learn how to be better business owners because they have to work harder to get and keep customers, says Caroline Daniels, an Entrepreneurship lecturer at Babson College in Wellesley, Mass. “In the days when the economy is booming and a lot of resources are around, we get sloppy. We take customers for granted,” Daniels says. “In a recessionary period ... we need to get to know our customers better.”

Fresh Ground's founders, who decided to start their firm after they were laid off from their jobs in 2009, took lessons from some disappointing client meetings and flipped them into a strategy that is helping them build their business. The firm's revenue has doubled in the past year, according to Tanowitz.

“We knew consciously that coming out of a recession we'd be much stronger, we'd have a good base of clients,” Tanowitz says.

When Jeanine Hamilton started Hire Partnership, a staffing company, in Boston in mid-2008 it looked like the worst possible timing. Companies were laying people off and there was very little hiring going on. Like Tanowitz and Van Hoosear, Hamilton also had been laid off.

“I didn't realize how bad the recession was going to be — I don't think anyone knew right then,” Hamilton says.

Business was tough at first, but Hamilton found that there were benefits to launching in an economic downturn. Because so many people were unemployed, she was able to get highly qualified candidates that she could send out on temporary jobs and to interviews. Because she was able to pull together a large group of strong temporary workers and job candidates, she developed a good reputation that is serving her well now that the economy is showing signs of life. Since the middle of her first year in business, she says, revenue has climbed 4,000 percent.

The recession not only helped Hamilton find good people for her clients, but gave her more time to work on making her own staff better. Since business was slow, she spent more time on training with her staff such as doing role-playing exercises and listening to her employees as they worked with clients, and then giving them feedback.

“When you have crazy times, you don't have time to do that,” she says.

The prospect of opening a knitting shop in the aftermath of the recession looked risky. The economy was hard on boutiques that sell designer yarns, knitting and crochet needles and patterns. Many went out of business when customers cut back on their hobbies or looked for less expensive yarn online.

But is also meant there was less competition. So Karen Posniak, a former retail salesperson and a personal shopper, decided it was a good time to fulfill her dream of opening a knitting shop of her own. She and her husband had moved to Hoboken, N.J., just across the Hudson River from Manhattan, to be closer to his job in New York City. She used proceeds from the sale of their old house in a New Jersey suburb to open the store, Do Ewe Knit in Hoboken in August.

Hoboken's proximity to New York had pushed rents up over the years, but like most of the country, the tough economy brought prices down. The soft real estate market made it easier for Posniak to negotiate a three-year lease with the terms she wanted, she says. The landlord originally wanted to charge her $3,100 a month.

She told him, “I'm just starting out. Maybe you can help me — can't you give me a better price?”

Posniak ended up with a one-year lease of $2,800 a month, with options to renew for $3,000 in the second year and $3,150 in the third year.

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